Is the Development and Design of Multifamily Rental Housing
In Line with Recent Trends?
September 16, 2013
Fannie Mae Housing Insights, Volume 3, Issue 8
Introduction
“Pull-out
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supply
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multifamily apartments
on the rise, developers
likely will benefit from
avoiding the ‘cookie
cutter’ approach to
Although the U.S. homeownership rate has declined significantly to
65.1 percent as of the second quarter of 2013 from its peak of 69.4
percent in the second quarter of 2004, homeownership continues to be
popular. According to data from the Fannie Mae National Housing
Survey 1 , which assesses consumer attitudes toward owning and
renting, approximately half of the renter respondents stated that they
would like to own a home someday. Even more telling, approximately
57 percent of those aged 18 to 34 years old – the cohort most likely to
rent, according to the Census Bureau – also stated that they aspire to
own a home. That sentiment, coming from the nation’s young adults,
may suggest to multifamily rental developers that perhaps this cohort
is not likely to turn the U.S. into a “rentership society” 2 – at least, not
by choice.
multifamily housing.”
This edition of Housing Insights examines the demographic conditions
that have contributed to an increase in multifamily supply, looks at the
general characteristics of the new multifamily supply, and suggests implications for multifamily apartments
given the continued stated preference to own from the primary renter cohort.
Significant Increase in Renters
Renter household formation has outpaced owner household growth during the past few years. But the majority
of new renters may not be renting traditional multifamily housing – defined as units in buildings with five or
more rental units. Instead, they have been renting single-family homes, as illustrated in Exhibit 1.
Exhibit 1. Single-Family Homes Capture a Growing Share of Rental Market
Source: U.S. Census Bureau, American Community Survey
1
The Fannie Mae National Housing Survey Topic Analysis Report released on June 6, 2013 examines the results from three monthly surveys, which
polled a nationally representative sample of 3,004 respondents aged 18 and older between July 5, 2012 and September 22, 2012. The three monthly
samples completed during that time were combined into one dataset. All three studies were identical in wording and placement of questions. Interviews
were conducted by telephone by Penn Schoen Berland, in coordination with Fannie Mae. For additional survey results:
http://www.fanniemae.com/resources/file/research/housingsurvey/pdf/nhsq32012presentation.pdf
2
Oliver Chang, Vishwanath Tirupattur, and James Egan, 2011, “Housing Market Insights: A Rentership Society?” Morgan Stanley Research, July 20,
2011
Single-family rentals (defined here as rentals in
properties with one to four units) far outnumber
multifamily rentals. The 2011 American Housing
Survey identified 21.3 million occupied single-family
rental units compared to 16.1 million occupied
multifamily rental units. During the past few years,
the increase in demand for rental units has tilted in
favor of single-family rentals rather than multifamily
units. In fact, according to the American Housing
Survey, single-family rental units represented 51
percent of the occupied rental stock in 2005
compared to 44.8 percent for multifamily rental units.
By 2011, single-family rental units had grown to 54.8
percent of the occupied rental stock in 2005
compared to 41.3 percent for multifamily units.
Despite these statistics, new multifamily construction
has increased steadily during the past two years,
according to data from the Census Bureau, leading
to the question: Why is there a focus on multifamily
development? The likely answer: Demographics and
job growth.
Improving Job Growth in Prime Renter
Cohort
The labor market is recovering slowly from the
effects of the Great Recession, which officially lasted
from December 2007 to June 2009 3 .
Correspondingly, the number of employed 20- to 34year-olds also has been growing modestly, as seen
in Exhibit 3. Since January 2010, the unemployment
rate among Americans aged 20 to 34 – the prime
renting cohort – has declined from 11.8 percent to
9.1 percent. In addition, while approximately 2.8
million jobs were lost among this cohort during the
recession, roughly 2.1 million have been regained
since January 2010. The rebound in employment
among young adults provides the prime renting
cohort with income to rent. As developers have
perceived the increase in demand, they have
increased the number of multifamily units under way.
Exhibit 3. Labor Market Improves for Young Adults
Growth of Young Adult Population
Demographics are in the multifamily sector’s favor
over the long term. According to the U.S. Census
Bureau, by 2020 the U.S. population will include 68
million people between the ages of 20 and 34, the
group most likely to rent, as seen in Exhibit 2.
Exhibit 2. Young Adult Population Expected to Grow
Source: U.S. Bureau of Labor Statistics (BLS): Current Population
Survey, per Moody’s Analytics
Shared Households Decreasing Recently
Source: U.S. Census Bureau, Population Projections and Estimates
According to the Census Bureau, in early 2007 there
were 19.8 million shared households, or 17.6 percent
of all households 4 . Shared households are
characterized by the presence of an additional adult
aged 18 or older who is not the head of the
household, nor the spouse or cohabiting partner of
the head of the household. The number of shared
households increased each year from 2008 to a
peak in 2010 of 22.2 million, or 19.4 percent of all
households. That trend reversed with the number of
shared households declining, albeit slightly, to
22 million or 19.2 percent of all households in 2011.
3
National Bureau of Economic Research. See
http://www.nber.org/cycles/sept2010.html and
http://www.nber.org/cycles.html
4
Macartney, Suzanne and Mykyta, Laryssa “Poverty and Shared
Households by State: 2011” U.S. Census Bureau American Community
Survey Briefs, Issued November, 2012.
© 2013 Fannie Mae. Trademarks of Fannie Mae.
2
This change in households seems to coincide with
the improvement in job growth, as seen in Exhibit 3.
A combination of continued job growth, smaller
household sizes, and positive multifamily
fundamentals (in terms of lower vacancy rates and
higher rent increases) appears to have led
developers to focus on building new multifamily
properties, especially in larger metropolitan areas.
Multifamily Construction Rising Quickly
According to McGraw-Hill Construction’s Dodge
Pipeline, which monitors reported construction
activity separately for the multifamily rental
apartment and condo markets, apartment
completions were up in 2012 after a period of belowaverage completions in 2010 and 2011, as seen in
Exhibit 4. Excluding condos, multifamily apartment
completions totaled an estimated 123,000 units in
2012, an increase of 24 percent over the estimated
99,000 units completed in 2011. As of June 2013,
there were another 42,000 apartment units in the
final planning/bidding stages.
Exhibit 4. A Rebound in Apartment Units Completed
and Under Way
Construction Focused in a Few Primary 5
Metro Areas
As seen in Exhibit 5, only a handful of metro areas
have more than 10,000 units under way, including
New York, Washington, DC, Dallas, Austin, Boston,
and Denver. In fact, the apartment market’s
construction activity has been uneven. For example,
the Washington, DC metro, with a population of 4.6
million, has nearly as many units under way as the
New York City metro, with a population of just under
12 million 6 .
Many of the metro areas with the highest number of
completions expected in 2013 include larger metros
with a fairly significant percentage of renters, such as
New York City, Washington, DC, and Boston. Other
primary metros that have been able to attract
development include Austin, Raleigh, Charlotte, and
San Antonio. In fact, these metros have a significant
amount of new inventory coming online. As seen in
Exhibit 5, construction under way will increase
inventory in all four metros by 5 percent or more
during the next couple of years. However, these
metros also are projected to have above-average job
growth 7 during the next five years. In contrast, many
secondary and tertiary metro areas have not
attracted as much investment in developing new
multifamily projects.
Exhibit 5. Apartment Construction is Concentrated in
a Few Markets
Source: CBRE-EA/Dodge Pipeline, June 2013
*Anticipated completion date
Please note that the Dodge Pipeline data are not a forecast of
construction activity; the data monitor activity reported to date. As more
projects are planned and tracked, figures in future periods may increase.
Even more dramatic is the increase in construction
under way. According to McGraw-Hill Construction’s
Dodge Pipeline, approximately 205,000 apartment
units are expected to be completed in 2013.
Construction also should be healthy in 2014, when
another 157,000 multifamily apartment units that are
under way are expected to come online.
© 2013 Fannie Mae. Trademarks of Fannie Mae.
Source: CBRE-EA/Dodge Pipeline, June 2013
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Primary metro areas are defined here as those with a population size of
greater than 1 million. Secondary metro areas have a population size of
500,000 to 1 million and Tertiary metro areas have a population size of
less than 500,000.
6
Moody’s Analytics, Precis Report for Washington, DC and New York,
May 2013.
7
IHS Global Insight Metro Ranking for Total Nonfarm Employment 20132017 by Value
3
New Planned Units Also Focused in
Primary Metro Areas
As seen in Exhibit 6, units in the planning, final
planning, and bidding stages also are highly
concentrated in a few metro areas. Many of these
new projects are located in primary metros, which
also are most likely to have the best job
opportunities, and thereby are most likely to attract
the growing population of young adults.
Exhibit 6. Planned Apartments are Concentrated in a
Few Markets
Source: CBRE-EA/Dodge Pipeline, June 2013
Micro Apartments Target Solo Renters
A relatively recent phenomenon is the planning and
development of “micro” units in high-cost, primary
metro areas, such as New York City, Boston, and
San Francisco, where rents have increased
dramatically in the past few years. While size limits
vary from city to city, micro apartments are generally
defined as being less than 600 square feet, although
some units can be even less than 300 square feet.
Micro apartments shrink studio apartments down to
bare essentials. Many contain such features as pulldown Murphy beds and contain hidden storage and
dual-function furniture to make maximum use of the
limited space.
However, there have been questions about the
affordability of micro apartments. According to the
Boston Globe 8 , the city of Boston has authorized the
building of 190 “innovation” units (some as small as
350 square feet in the Seaport District) that will rent
for as much as $1,500 a month. This would require a
tenant to earn an annual salary of $60,000 based on
the traditional definition of affordability where a renter
pays no more than 30 percent of their income on rent
and utilities combined.
Developers Focused on Younger Renters
A number of new multifamily developments under
way include other features targeted to younger
renters. For instance, many planned units
incorporate technology-ready features, such as
hidden electrical connections and places to wallmount flat screen monitors. By incorporating green
living features – like on-site recycling, energyefficient fixtures and appliances, low-flow plumbing,
and other eco-friendly options – developers are
trying to capture the attention of young renters.
Renters Now, But For How Long?
While many proposed amenities target younger
renters, it is unclear how long these renters will stay.
The Fannie Mae National Housing Survey shows
that slightly more than half of renters surveyed would
still prefer to own. As shown in Exhibit 7, 51 percent
of all survey renters would like to be tomorrow’s
owners. However, among younger renters only, 57
percent would like to own, as shown on Exhibit 8.
These respondents see renting as a stepping stone
to eventual homeownership and indicated that their
primary reason for renting is to make themselves
financially ready to own. Only 13 percent of younger
respondents are likely long-term renters.
The primary amenity of micro apartments usually is a
good location – close to jobs and mass transit. In
theory, these units are designed primarily to appeal
to younger, price-sensitive renters who want to
remain in an urban location but forgo a roommate
lifestyle and live alone.
8
Let Developers Think Small, Creating New Housing For All” The Boston
Globe, June 23, 2013. See also Wong, Vanessa “Micro-Apartments in
the Big City: A Trend Builds,” Bloomberg Businessweek, March 14,
2013
© 2013 Fannie Mae. Trademarks of Fannie Mae.
4
Exhibit 7. Overall Renters Would Prefer Home
Ownership
Exhibit 8. Younger Renters Have a Stronger
Preference for Ownership
Washington, DC, Boston, and San Francisco. Many
workforce households consist of families, not just
single-person households, who need to rent multiple
bedroom units.
Even if the current primary renting cohort does not
achieve the goal of homeownership, their renting
wants and needs may change as they age. Over
time, today’s young renters will likely demand larger
apartments with more bedrooms, more on-site
amenities, closer proximity to schools, and more
storage space. Multifamily developers may need to
react quickly and effectively over the coming years
by offering the specialized kinds of rental housing
that match consumers’ changing needs across the
stages of life.
Tatyana (Tanya) Zahalak Economist, Multifamily Economics and Market Research September 2013
Source: Fannie Mae National Housing Survey Topic Analysis Report
Released June 6, 2013, page 14:
http://www.fanniemae.com/resources/file/research/housingsurvey/pdf/nh
sq32012presentation.pdf
Avoiding the “Cookie Cutter” Approach
to Multifamily Housing
The desire for homeownership among young renters
has implications for multifamily development. Rather
than gearing new multifamily apartments exclusively
to the prime renting cohort, developers will likely
benefit from offering rental units to older adults, such
as “empty nesters,” retirees, and seniors looking to
exchange suburban, single-family homes for a more
flexible lifestyle of maintenance-free renting.
The author thanks Kim Betancourt, Patrick Simmons, and Orawin Velz of Fannie Mae for valuable comments in the creation of this Housing Insights. Of course, all errors and omissions remain the responsibility of the author. Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Multifamily Economics and Market Research Group (MRG) included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the MRG bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the MRG represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.
There also is a need for more workforce housing,
defined by the Urban Land Institute’s Terwilliger
Center for Workforce Housing as housing for those
“earning between 60 and 120 percent of [Area
Median Income], whose members often work in the
country’s most expensive regions.” 9 These are
usually major centers of employment, such as
9
Terwilliger, Ronald J. America’s Housing Policy—the Missing Piece:
Affordable Workplace Rentals. Washington, DC: Urban Land Institute,
2011.
© 2013 Fannie Mae. Trademarks of Fannie Mae.
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